Venezuela has only one reliable way to earn hard currency. Its economy is cash starved, its access to global credit markets remains severely constrained, and its exports outside oil are marginal. In practice, the country pays for imports, services debt, and keeps the state running almost entirely through oil sales.

Control over oil income therefore equals control over Venezuela’s ability to meet its obligations.

The United States (US) has moved to place the proceeds from Venezuelan oil sales into an account under US control, rather than leaving those funds at the direct disposal of the Venezuelan state. Venezuela can still sell oil, but it no longer automatically controls where the money from those sales goes.

Venezuela has relied on oil as its payment method for years. China lent Venezuela large sums, and repayment was structured around oil shipments, with cargoes functioning as the substitute for normal debt servicing.

It is estimated that China has made loans worth more than $100 billion to Venezuela over the past two decades.

That arrangement, where Venezuela repays China in oil, is now being squeezed by a shift in who controls the oil money. The US has said proceeds from Venezuelan oil sales will be routed into a Qatar-based account controlled by Washington. If Venezuela can only pay its creditors out of oil income, and the US controls where that oil income goes, then Washington can effectively decide whether China is paid, when it is paid, and on what terms.

China’s foreign ministry said the “legitimate rights and interests of China and other ⁠countries in Venezuela must be protected”. US officials have framed the move as a way to stop discounted oil deals, with one official saying, “The people of Venezuela will ‌collect a fair ‌price for their oil from China and other nations.”

The dispute turns this oil-for-loans arrangement into a strategic pressure point. China’s exposure is tied to a repayment channel it does not control, while the United States is now positioned to use control over Venezuela’s oil proceeds to decide when, and if, China ever gets its money back.